Oil field services major Halliburton (NYSE:HAL) has been gradually increasing its presence in Poland’s fledgling shale gas space. Despite some recent setbacks, Poland is still viewed as one of the most attractive regions for shale gas exploration in Europe, and we believe that it could be a growth market for large oil field services firms given the lack of exploration and production expertise within the country.
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Some Setbacks, But Potential Remains Good
Poland was believed to have had the largest shale gas reserves in Europe, amounting to around 5 trillion cubic meters, based on estimates by the U.S. EIA . However, more recent reports from the Polish government, drastically reduced the figure to between around 346 billion cubic meters to 768 billion cubic meters. While these figures are as much as 80% below initial estimates, they still make Poland the third-largest holder of gas reserves in Europe. 
Besides concerns relating to the amount of gas held by the country, there have been some problems with test drilling with some reported failures on test wells due to the challenging geology. Last year, oil major Exxon Mobil (NYSE:XOM) decided to pull out from the Polish shale space following some disappointing results from its test wells. However other large players like Chevron (NYSE:CVX) have remained committed.
Despite these setbacks, we believe that shale gas remains promising in Poland since the country currently imports more than 60% of its natural gas requirements from Russia at very high prices. This is bringing about an urgency to tap into the country’s shale gas reserves to boost energy independence and bring down costs. The government also seems to be doing its bit to make the process smoother. In February, Poland’s environment minister said that the country intends to pass a set of laws that would make it easier to explore and produce shale gas. Additionally the production tax rates are expected to be lower than some other European nations at around 40%. It could still take a few more years for commercial production to begin.
Why Oil Field Service Firms Like Halliburton Can Play An Important Role
Poland has auctioned a total of around 100 shale gas concessions in the country. While many of the concessions have been bought by international oil and gas majors, some mid-sized and smaller firms have also picked up interests. These firms are unlikely to have the expertise to explore and eventually produce shale gas and will need to rely on oil field service providers like Halliburton.  For instance, Halliburton recently entered into an agreement with San Leon Energy, to jointly explore and develop some unconventional gas reserves in three of San Leon’s concessions in Poland. 
Extracting shale gas requires significant expertise. Unlike most oil and natural gas reservoirs that typically require drilling vertical wells, accessing shale gas deposits requires a complex technique of horizontal drilling. In conjunction with this, hydraulic fracturing is required to create cracks in the shale rocks and stimulate the flow of the gasses. Moreover, the shale gas beds in Poland are believed to be much deeper than those in the U.S., meaning that accessing them could present more of a challenge, requiring the services of experienced contractors like Halliburton.
Halliburton’s unconventional plays business is still heavily dependent on North America, a market that has witnessed severe pricing pressure in recent times due to low natural gas prices. If Halliburton is able to make further progress in Poland’s shale space, it could increase its revenue per rig as well as EBITDA margins since unconventional plays require a higher level of service intensity and command better rates.
We have a price estimate of $48 for Halliburton, which is around 20% ahead of the current market price.Notes: